By: Marius Kemp
With the festive season fast approaching, it’s crucial to plan your finances carefully to ensure you manage your money wisely and don’t end up in a “Janu-worry” scenario. A financial audit is a great way to check if your finances are working as hard as possible for you and where there may be opportunities to save.
According to the latest Santam Insurance Barometer report released toward the end of 2023, 88% of consumers were already adjusting their spending as the cost of living increased. Managing one’s finances and finding ways to cut unnecessary expenditures has become increasingly important as the cost of living increased. One of the areas to address in your audit is your insurance contract. Quite often we forget to declutter this important agreement. Your contract with your insurer is automatically renewed every year and for most people, it simply ‘ticks over’ without them going over the finer details to check that they’re neither over nor underinsured.
Insurance is not just your financial cover in the event of unexpected circumstances. It is the safety net for your finances, and your saving grace in the long term and protects relatives from any form of financial stress in your absence. Insurance is a contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
Insurance is an essential component in protecting your finances, making it a vital part of any portfolio: Regularly reviewing your insurance policy could even lead to long-term savings.
Five tips to streamline your policy and potentially reduce costs over time.
1. Adjust the amount you’re insured for: The purpose of reviewing your policy is to ensure you are insured for the right amount – this is what insurers call the ‘sum insured’ or ‘limit of indemnity’. For example, if you have bought a brand-new bicycle and a few other items you will need to adjust the contents of your home insurance cover or specify some items. Or maybe, the value of your car has depreciated, and you want to lower the premium you pay, accordingly as your insurer. Check for specified items you’ve sold or items that are no longer in use such as old cell phones, replaced laptops, or computers that could be removed from the policy.
2. Underinsurance: This may sound obvious but, the value of the goods insured should equal what it would cost to replace them today, not the original purchase price, except for motor insurance (see below). Very often, we find that goods remain insured for their original value – for example, a leather couch bought 10 years ago would be insured for R6 000 but to replace the couch might be R20 000 today. Therefore, insurance companies usually automatically adjust your sum insured each year at renewal to keep pace with inflation. This also depends entirely on whether the original sum insured was the true replacement amount at the beginning of the policy.
3. The structure of your home: If you’ve enhanced the value of your home by adding solar panels, redoing your kitchen, or installing a swimming pool, you need to increase the amount your house is insured for with the replacement value of these additions. This once again depends entirely on whether the original sum insured was the true replacement amount at the beginning of the policy. Your house (its structure) and your belongings (the contents of your home) must be insured at their replacement value – that is, what it will cost you, at the time of a claim, to replace/rebuild the building (your home) or all your belongings with similar, new structures or items.
4. Your car: Your car should be insured for the ‘reasonable market value’. Reasonable market value is the retail value of a similar vehicle, which is what a dealer would sell it for, considering its age, make, model, mileage, the condition of the car, and any extras. If you’re wondering what your car is worth, consult the auto traders in the industry to determine the reasonable market value of your car.
5. Save on car premiums: If your daily driving routines have significantly changed due to your working conditions such as working from home, or changing jobs, that may result in less travelling. Most good insurers will offer discount models that reward this reduced risk so it's worth checking what is on offer if you are on the road less.
While doing personal and lifestyle audits, ensure your finances are included in this process. This helps to avoid any disappointments when an incident that requires you to claim from your insurer occurs.
* Kemp is the head of personal lines at Santam.
PERSONAL FINANCE